Swets’ Annual Report

Founded in 1901 as an antiquarian bookstore in Amsterdam, Swets grew to be an international content management company serving both publishers and libraries. (It provides selection and access management services for libraries along with marketing and sales services for publishers.) According to its most recent annual report, Swets has more than 8,000 global customers, representing about 800,000 print and electronic subscriptions. With offices in 20-plus countries in Europe, Asia, Africa, and the Americas, Swets has nearly 600 total employees worldwide.

That same annual report, however, paints a disturbing picture of Swets’ financial situation. Describing 2013 as a “turbulent year,” the report indicates that “the intended transformation of Swets requires more capital and scale than is currently available.” The report’s final data shows decreases in net sales and cash flow, as well as a net loss of more than €50 million (about $63 million) for 2013. The report cites continued economic challenges “across much of the western world” and the continuing market shift from print to digital commissions as contributing to its woes.

A History of Problems

Swets’ problems, however, appear to go back even further. A 2004 article in Library Journal reported that Swets needed a “cash injection” of €45 million (about $57 million) to stay afloat after accounting errors revealed previous losses. The Swets annual report further indicates that the company received additional long-term financing from multiple sources in 2007 and as of December 2013 owed more than €75 million (about $95 million) on that financing. It says that the company “failed to meet its covenant requirements” (loan payments) at the end of 2013 and the first and second quarters of 2014.

Swets represents at least the third major bankruptcy within the information industry in just the last 3 years. In 2012, Houghton Mifflin Harcourt filed for bankruptcy, followed in 2013 by a filing from textbook publisher Cengage Learning. In both cases, the companies filed for bankruptcy protection under Chapter 11 of the U.S. Code: Title 11 - Bankruptcy. A Chapter 11 bankruptcy, titled Reorganization, allows companies such as Houghton Mifflin Harcourt and Cengage Learning to continue in operation while negotiating with their creditors for restructuring debt or accepting alternatives to the debt payments. In both the Houghton Mifflin Harcourt and Cengage Learning situations, the companies have been able to remain in business, and both have emerged from bankruptcy.

Dutch Bankruptcy Law

Swets’ bankruptcy, however, has been filed in the courts of the Netherlands and is governed by Dutch bankruptcy law. The law, which dates back to 1893, provides for two options for business organizations: bankruptcy (“faillissement” in Dutch), in which the debtor is declared to be insolvent and its assets are liquidated to pay the creditors’ claims, and  a “moratorium” or suspension of payments (“surséance van betaling” in Dutch), which appears to be similar to Chapter 11 in that it provides for the temporary suspension of debt payments to allow the business to reorganize and work out arrangements with its creditors. (The Netherlands’ bankruptcy law is in the Dutch language but can be reasonably understood when using an online translator such as Google Translate.)

According to reports (some of which were originally published in German or Dutch and translated using online translators), Swets requested a suspension of payments order from the Dutch courts, which was granted on Sept. 19. The court appointed an administrator to oversee the suspension process. However, after “working tirelessly to investigate alternatives for the business,” according to the press release, Swets filed for bankruptcy and was declared bankrupt on Sept. 23.

Swets’ Future

For the near term, at least, it appears that Swets’ day-to-day operations will continue. The Sept. 24 press release indicates that the bankruptcy court has granted the company a 2-month “cooling off period” that prevents creditors from foreclosing on Swets’ assets during that time. A post on Library Journal’s infoDOCKET notes that German publisher De Gruyter has advised its customers that it expects the “business operations of Swets” to continue. However, De Gruyter also indicates that it is putting all of its new orders and subscriptions with Swets on hold. Other publishers are contacting their customers with similar messages, recommending that the customer deal directly with the publisher and not with Swets.

As for the long term, the bankruptcy declaration likely means that the company’s assets will be liquidated to pay off its debts. Notably, according to Swets’ press release, the bankruptcy filing does not “for now” include its foreign subsidiaries, although that continues to be investigated. The subsidiaries, however, may be considered assets of the company, which would be sold to pay off the creditors. Alternatively, if the subsidiaries continue to not be included as part of the bankruptcy, they could be spun off as stand-alone businesses.

With the ongoing upheaval in the publishing industry, it is likely that this third bankruptcy will not be the final one to be seen. The transition from print to digital has been a factor in all three bankruptcies and continues to be a challenge for the industry (as witnessed by the very public battle between Amazon and Hachette Book Group over ebook distribution). The continuing weak economy is not helping either. Regretfully, Swets is now another victim of these challenges. The question is, which company will be next?